The Iranian


email us

Flower delivery in Iran

Fly to Iran

Sehaty Foreign Exchange

    News & views

Japan Firms Win Head Start in Iran Oil Rights Deal

TOKYO, Nov 1. 2000 (Reuters) - Japanese firms are set to gain an advantage over their Western rivals in negotiating rights to develop Iran's huge Azadegan oil field, a step that offers the opportunity of breaking into the global upstream sector. Cartoon here

Japan has said it expects to conclude a deal with Iran on Wednesday to acquire negotiating rights to develop Azadegan, the world's biggest undeveloped field, which is located close to the border with Iraq.

The final round of negotiations was timed to coincide with a visit by Iranian President Mohammad Khatami who arrived on Tuesday for a four-day visit. He is accompanied by Oil Minister Bijan Zanganeh.

Japanese firms have been only minor players in the lucrative global upstream sector, playing second fiddle to the world's major energy companies.

While industry officials say more test drills need to be conducted before the actual size of the Azadegan field can be ascertained, they acknowledge that the field has great potential.

Iran has said the field has at least five to six billion barrels of recoverable reserves with the potential to produce up to 400,000 barrels of crude oil per day -- or more than 80 percent of the amount Japan now imports from Iran, its third-largest supplier.


Initial reaction from Japan's energy industry has been low-key, however.

One senior oil company executive said: "We have no information on the oil field, nor have we received any information from the government."

Two firms named by Japan's Ministry of International Trade and Industry (MITI) as having shown an interest in the field declined comment, even though the deal is virtually clinched.

Both firms -- Japan Petroleum Exploration Co Ltd (JAPEX) and Indonesia Petroleum Ltd -- are semi-governmental, with state-run Japan National Oil Corp (JNOC) having stakes in them of 65.7 percent and 50.0 percent respectively.

The level of private-sector interest was hard to gauge, but one industry source said he believed the matter was far from being in the bag, which was why only the names of semi-governmental firms had so far been raised.

Asked if the government had already gained a certain amount of private-sector support, the source said: "Just look at the level of the equity stake held by the government in both those firms."

The deal with Iran is in line with the Japanese government's goal to try to make up for the loss in February of Tokyo-based developer Arabian Oil Co Ltd's oil concession in the Saudi Arabian portion of the Neutral Zone.

Japan imports virtually all its oil.


Nevertheless, some energy experts say Japanese firms should make the most of this opportunity to gain a foothold in this major oil producing area.

Iran alone is home to the world's second-largest deposits of gas and the fifth-largest proven oil reserves.

Ken Koyama -- group manager at the Institute of Energy Economics Japan (IEEJ) -- said Japan should concentrate its strength and take part in a large development project rather than divide its strength by taking part in several different small projects, which was what commonly happened in the past.

He said it goes without saying that there are risks involved, but added that the possible profits to be gained for private firms would also be substantial.

"It is a huge investment opportunity...that Japanese firms should take advantage of," Koyama said.

The return on investment -- about 15-20 percent even under a buy-back scheme -- is higher than Japanese firms are currently earning, he said.

Under Iran's buy-back scheme, foreign firms receive crude as compensation and profit in return for investing in projects under a formula that denies them a direct equity stake.

Japanese firms have been reluctant to invest in Iran partly because of the extra-territorial Iran-Libya Sanctions Act, which says the United States is ready to impose sanctions on foreign firms that invest in Iran and Libya, countries it says sponsor terrorism.

This is due to expire next August, but another set of sanctions, banning U.S. trade and investment, remain in place. Washington has, however, yet to penalise foreign firms although several big European energy firms including Italy's Eni SpA, France's TotalFina-Elf SA and Anglo-Dutch giant Royal Dutch/Shell Group have all signed energy deals with Iran.

If the deal is clinched and Japanese firms do go ahead with the development, it could become Japan's first big investment in Iran since that country's 1979 revolution.

There has been no new Japanese investment in Iran since 1993.

Trade has been mostly one-sided, with Japan's exports to Iran totalling about $361 million between January and August this year, according to Finance Ministry data.

By contrast, imports from Iran amounted to $3.4 billion, with crude oil accounting for some 96 percent of the total.


 MIS Internet Services

Web Site Design by
Multimedia Internet Services, Inc

 GPG Internet server

Internet server by
Global Publishing Group.